Singapore - Chinese marine fuel suppliers have signed up short-term deals to buy very low-sulphur fuel oil from companies like oil major Shell, Germany’s Uniper and U.S. commodities trader Freepoint ahead of a new standard on emissions for the global shipping industry that kicks in on Jan. 1.
While China’s state refiners have pledged to produce a combined 14 million tonnes of the fuel for 2020 that complies with the tighter rules set by the International Maritime Organization (IMO), Beijing has not yet rolled out much-anticipated tax breaks that will encourage refineries to ramp up domestic output of the very low-sulphur fuel oil (VLSFO).
Instead, companies like Chimbusco, PetroChina and Sinopec Corp have procured supplies from the international market to cover demand up to the end-March, executives at the three firms said. The officials declined to be named as they’re not authorized to speak to media.
The buying pattern comes as the world’s shipping business gets set to go greener to comply with IMO rules: From Jan. 1, they’ll be obliged to run ship engines using VLSFO or marine gasoil (MGO) of 0.5% sulphur content, down from the current 3.5%.
“China continues to buy the (low-sulphur) fuel in bulk from Singapore as local tax legislation deters Chinese refiners from selling into the bunker (shipping) fuel market,” consultancy Energy Aspects said in a note this week.
Beijing has been widely expected to announce by end-2019 a waiver of a 1,218 yuan (160 euros) per tonne consumption tax and offer rebates of the 13% value-added tax currently levied on fuel oil to allow the country’s refiners to economically produce VLSFO.
The Chinese companies are importing 500,000-700,000 tonnes of VLSFO per month on average from November to January, diverting limited supplies from Singapore, the world’s top bunkering hub, three Singapore-based traders said.
PetroChina has secured close to 1 million tonnes of 0.5% sulphur content fuel oil from Dubai-based Uniper Energy, a united of Germany’s Uniper, and U.S. trader Freepoint, while Chimbusco has also bought from companies including Shell to cover several months’ sales.